Peaking Generation for Connecticut

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Peaking Generation for Connecticut
Tony Marone October 14, 2009
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Background

• 200?-2007 Insufficient fast start peaking
  generation resources necessary to meet local
  operational requirements (LRFM) of the electric
  system.
• This shortage resulted in higher customer costs
  and the need to operate older less efficient
  units as peaking resources.
• Lack of market response to build peaking assets.
  
• 2007 Section 50 of Public Act 07-242, An Act
  Concerning Electricity and Energy Efficiency
  directed the CT DPUC to solicit proposals to
  build new peaking generation that would operate
  under a cost-of-service pricing structure.
• Electric distribution companies and merchant
  generators were allowed to participate in a
  competitive selection process.

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The Formation of GenConn
Experienced Developer/Generator Existing Sites,
Projects, Permits Completed or Queued
interconnections ISO NE FCA Qualified
Electric Distribution Company Long Relationship
with Policy Makers Strategic Realignment w/ LT
CapEx Program COS Regime Operations
UI/NRG JV Strategic Alignment Regulatory
Compliance Commercial Advantage
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CT DPUC Process

• DPUC Rules Docket established bidder and proposal
  requirements along with a long-term contract
  (Cfd) template.
• Peaking Generation Proposals were submitted to
  the DPUC on 3/3/08.
• Seven competitors offered thirteen options
• Over 1800MW offered vs. DPUC claimed need of
  500MW
• GenConn offered four options ranging from
  200-500MW
• GenConn was selected to build 400MW of fast start
  peaking
• GenConn Option 2 (400M) consisting of 187.6MW
  in Devon and 187.6MW in Middletown Ct.
• Devon COD 6/1/2010
• Middletown COD 6/1/2011

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Projects
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GenConn Project Structure
The United Illuminating Company
NRG Energy, Inc.
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50
GCE Holdings LLC
LandLease and Shared Facility Agreements
CommercialOperationsContract
ConstructionManagementAgreement
OMContract
Administrative Agreement
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(Borrower)
Direct
EWGs
GenConn Devon LLC
GenConn Middletown LLC
Engineering Contract
ISO-NE(Revenues)
ProceedsOffset RevenueRequirements
Construction Contract
Cost-of-ServiceContract(Regulated)
CTG and Other Equipment Purchase Agreements
The Connecticut Light and Power Company
Connecticut Ratepayers
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Cfd Contract

• Revenue requirements cover fuel, capital costs,
  fixed and variable OM, taxes, financing costs
  and fixed return
• Projects participate in ISO-NE
• Shortfall in revenues from market paid to
  projects by CLP excess paid by projects to CLP

Revenue Framework
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Financing

• Anticipated Financing (3/08 proposal)
• A non-recourse permanent financing back-stopped
  by underwritten construction financing at the
  GenConn Energy level.
• Permanent financing from private placement market
  with back-stop from bank market
• Term for the debt to match 30-year term of the
  CfD
• Recourse limited to assets with no requirement of
  parental support beyond equity commitments
• An actual or implied investment grade rating
  (i.e., Baa3/BBB- or greater) expected based on
  the strong credit profile of the projects with
  30-year CfD supported by rate base
• An equity bridge loan to fund equity requirements
  during the construction period was proposed
• The global credit crisis of the fall of 2008
  changed everything!
• 30-year private placement rates exceeded ROE
• No underwriting available
• Very shallow market banks had limited capital
• Very few willing to lend above 50 million
• Credit risk must be investment grade
• Upfront and spreads had approximately doubled
  even for investment grade deals

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Pro Forma Simplified Lending Structure
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Construction Strategy Update

• Strategy
• Leverage existing infrastructure and skilled
  workforce at brownfield sites.
• Maximize use of fixed price contracts.
• Leverage synergies and timing of engineering,
  equipment purchases, and construction between
  Devon and Middletown locations.
• Maintain project scope, schedule and budget while
  maximizing customer and project benefits.
• Update
• 70 of Total Project Costs were fixed prior to
  financing.
• All major equipment supplied by vendors directly
  contracted by GenConn for both facilities.
• Barton Malow contracted as General Contractor.
• NRG Construction is acting as Construction
  Manager, pursuant to Construction Management
  Agreement (CMA).
• Construction budget and schedule are on track to
  meet contractual obligations and provide customer
  benefits starting 6/1/2010.
• GenConn preparing file its first rate case with
  CT DPUC in November.

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Questions